When companies generate revenue, all the money that’s left after accounting for the cost of business is the net profit, or net income. Shareholders (who are usually represented by a board of directors) choose what to do with that money. Usually, that means either investing it back into the business or distributing a portion of it to shareholders. A dividend is your personal share of the company’s net profit as determined by the shareholders.

Companies that are currently seeking growth often choose to reinvest this net profit into the business. More established companies, or those who aren’t seeking rapid expansion, often choose to redistribute a portion of their net profits to the shareholders.